In 2007, a New Jersey court ruled in Garcia v. HealthNet of New Jersey that physicians who refer patients to ambulatory care facilities (ACFs) in which they have a financial interest could be in violation of the Codey Act, New Jersey’s physician self-referral law. The New Jersey Legislature first introduced amendments to the Codey Act in March 2008, in response to the ruling that endangered many existing ACF relationships.

The Senate amended the bill Nov. 24, 2008, to restrict licensure of new ACFs to (a) surgical practices; (b) facilities that are jointly owned by a general hospital in New Jersey; (c) facilities owned by a hospital or medical school; and (d) certain licensed facilities and registered surgical practices in which there is a transfer of ownership or relocation within 20 miles from the practice or facility’s current location, there is no expansion in the scope of services provided by the practice and the Commissioner approves the transfer or relocation.

For purposes of the bill, a surgical practice has no more than one room dedicated for use as an operating room that is specifically equipped to perform surgery; has one or more postanesthesia care units or recovery areas; and is established by a physician, physician professional association surgical practice or other professional practice form for the individual or entity’s private medical practice.

The bill clarifies the physician referral restrictions to permit physicians to refer patients for a medical treatment or procedure that is provided at the physician’s medical office, and for which the patient is billed directly by the physician, or his or her medical practice.

The bill also permits referrals to registered surgical practices or licensed ACFs if the following conditions are met:

  • The physician with the financial interest refers the patient and also personally performs the procedure;
  • The physician’s financial interest is not related to volume of patients referred;
  • All clinical decisions are made by practicing physicians;
  • The patient is given prior written notice of the physician’s financial interest; and
  • The patient is informed whether the services will be considered to be, and reimbursed at, an out-of-network level by the patient’s insurance carrier or third-party payor.

Surgical practices will be required to register with the DHSS within one year of the effective date of the law and will be subject to annual reporting requirements. As a requirement of registration, a surgical practice will be required to obtain certification by the CMS, or an accrediting body recognized by CMS, as an ACF provider. In addition, existing ACFs will be required to obtain ambulatory care accreditation within one year of the effective date of the bill, and new ACFS must be accredited as a condition of DHSS licensure.

A final vote on the amended bill is expected December 15, before action is taken by the Assembly and the Governor. ACFs in operation on the date the bill is adopted will have one year to comply with the new requirements regarding physician referrals.